China's Energy Outlook

Bryan Chan
December 16, 2011

Since economic reforms were instituted in 1978,
China's Gross Domestic Product has grown rapidly. [1] However, such
rapid economic growth has also resulted in rapidly increasing demand for
energy. China has been responsible for approximately three quarters of
the increase in world energy demand in recent years, and its energy
consumption is currently larger than those of the three next largest
developing countries, India, Russia, and Brazil, combined. [1]

To power its growth, China has relied heavily upon
fossil fuels. A large portion of this has been in the form of coal, of
which China has abundant domestic supplies. [2] As of 2009, 70% of
primary energy came from coal, compared to a global average of 40%. [3]
However, coal is extremely damaging to the environment, and has been
estimated to cost China 1.7 trillion yuan a year, or 7% of its GDP, in
damages. Combustion of coal emits soot, sulphur dioxide, nitrogen
oxides, and carbon dioxide, which contribute to global warming. [3] The
mining process, in addition to being a dangerous process that results in
numerous deaths each year, also leaves by-products that damage the water
system and agricultural land. [3] Besides coal, roughly 19% of primary
energy comes from oil, roughly 4% comes from natural gas, and the
remaining 9% comes from renewable sources such as hydro, nuclear, and
wind power. Thus in total, nearly 90% of China's energy comes from
fossil fuels. [4]

In its latest five-year plan, published in 2011 and
active through 2015, the Chinese government has placed a greater
emphasis on balancing economic growth with limiting environmental damage
and making its energy sources more sustainable. [4] In order to decrease
reliance on fossil fuels, the Chinese government hopes to increase use
of renewable energy to 11.4% of total energy by 2015, and 15% by 2020.
The published targets also aim to reduce energy use per unit of GDP by
16% by 2015 and carbon dioxide emissions per unit of GDP by 17% in the
same timeframe. [4]

Although only a small fraction of energy used in
China currently comes from renewable sources, the Chinese government
hopes to promote growth in production of hydropower and nuclear power.
Prior to the Japanese nuclear crisis that occurred in March 2011, China
had extremely ambitious nuclear ambition plans. From a baseline
generation capacity of 10.8 gigawatts today, China was hoping to raise
capacity to 86 gigawatts by 2020, according to Kevin Jianjun Tu, a
senior associate for energy and climate at the Carnegie Endowment for
International Peace. [5] Since the disaster, a moratorium has been put
on approving new nuclear plants, but experts believe this expansion will
ultimately resume, albeit at a slightly slower pace. [4] Even if the 86
gigawatts target were achieved, nuclear power would still only amount to
8-10% of total energy, a fraction that is low in comparison to developed
countries. [5] Simiarly, China is aiming to rapidly expand its
hydropower capacity, with an official target of 284 gigawatts by 2015.
[4]

In the interim, while China's alternative energy
systems are being developed, China must continue to power its growth
with fossil fuels. Fossil fuel demand growth is estimated at 8% a year,
nearly in line with headline GDP growth, so this will not be an easy
task. [6] While meaningful imports of coal and natural gas may be
necessary at some point, it appears that the greatest challenge will be
to find enough oil. [1] As China's oil demand has increased
dramatically, it has been left with no choice but to import significant
amounts of foreign oil. While China initially tried to be
self-sufficient in this regard in the 1990s, they soon realized that
this would be ineffective over the long term. [1] Instead, the
government has changed its goal to increasing the 'security' of import
streams. [1] Some have observed, as David Zweig and Bi Janhai did in
Foreign Affairs magazine, that China has "been able to adapt its foreign
policy to its domestic development strategy", by encouraging state-owned
oil companies to pursue contracts with oil-rich countries, especially in
the Middle East and Africa, while simultaneously encouraging
governmental cooperation by conducting diplomacy and offering aid
packages. [7] Some in the United States have argued that this trend
poses rising risks to US national interests. The US-China Economic and
Security Review Commission noted in 2005 that a "key driver in China's
relations with terrorist-sponsoring governments is its dependence on
foreign oil to fuel its economic development." [7] Citing Iran and Sudan
as current examples of the time, they also predicted that this
dependency would increase over time.

In conclusion, China's energy supply is currently
over-dependent on fossil fuels, leading to environmental damage and
potential energy security issues in the future. The Chinese government
has instituted plans to diversify into alternative energy sources and
secure oil imports in the meanwhile, but these efforts are very
ambitious, and only time will tell if they are successful.

[8] "The Implications of China's Military and Civil
Space Program," Hearing Before the U.S.-China Economic and Security
Review Commission, One Hundred Twelfth Congress, First Session,
Transcript, 11 May 11, pp
2-4.